1Q12 results slightly lower than expected
1Q12 revenue totaled Rmb44.9bn (+4.3% YoY); net profitattributable to shareholders was Rmb863mn, or an EPS of Rmb0.05(-27.8% YoY), largely in line. The YoY decline in profit was mainlycaused by the company’s polysilicon business suffering a loss in1Q12 due to price reductions after contributing ~Rmb200mnearnings in 2011 on surged polysilicon prices.
Mild revenue growth: Operating revenue grew 4.3% YoY toRmb44.9bn, mainly thanks to stable growth in constructionbusiness (revenue +15% YoY in 1Q12). Revenue fromequipment manufacturing, resource development, and real estatebusinesses decreased 16%, 46%, and 24% YoY respectively.
Gross margin edged down 0.5ppt YoY: GM of constructionbusiness slid 0.4ppt due to higher labor costs; GM of resourcedevelopment fell 12ppt on plunging polysilicon prices; all otherbusinesses recorded growth in GM.
G&A expense ratio and financial expense ratio rose 0.4pptand 0.7ppt respectively: The higher G&A expense ratio wasfueled by expanding labor costs and R&D expenditure; whilethe higher financial expense ratio was due to mounting interestexpenses on increased interest-bearing liabilities and higherloan rates.
The value of newly-signed contracts totaled Rmb44.68bn in1Q12, down 24.8% YoY. As of end-1Q12, the value of backlogwas Rmb250bn, 1.4x 2011’s project contract revenue.
Revised earnings forecasts
We maintain our 2012e/2013e forecasts for net profits attributable toshareholders at Rmb4.27bn/Rmb4.60bn, or an EPS ofRmb0.22/Rmb0.24, up 0.5%/7.7% YoY.
Valuation and recommendation
MCC-A/-H is trading at 12.0x/6.1x 2012e P/E. We maintain ourHOLD rating on both given the limited contribution fromoverseas projects in the short term during business transition.
MCC-H’s 12-month TP is HK$1.70, implying 6x 2012e P/E.
Overseas mining projects gradually coming on stream may drive upthe stock price. Risks may come from the aggregate costs of SINO’siron ore project possibly exceeding the contract value recognized bythe owners, and the project settlement being subject to uncertainties.